MFSA issues Circular to the Industry on Brexit Readiness

by , on Nov 20, 2020 11:38:50 AM

MFSA issues Circular to the Industry on Brexit Readiness

The Malta Financial Services Authority (‘MFSA’) has issued a circular addressed to licensed insurance, investments and credit and financial institutions providing guidance on the measures to be taken in light of the end of the Brexit transition period on 31st December 2020, whereby EU law will no longer apply in the United Kingdom (‘UK’).

Firstly, the MFSA reminds licence holders to finalise and implement their contingency plans in line with applicable EU legislation including prudential, conduct and AML/CFT requirements. Such contingency plans must take into account that the expiry of the transition period will prevent UK-based entities from offering financial services to EU customers on a cross-border basis through pan-European passporting and vice versa. Firms are also reminded that clients must be informed about such preparations, especially of any changes which are material to them. The Authority expects that contingency plans are complete or in the final stages of preparation. While the Authority notes that equivalence frameworks might be put in place in certain areas of EU law if the European Commission recognizes that the regulatory regime in the UK is equivalent to EU law, which would allow UK firms to provide their services to EU clients, license holders are still advised to prepare for a scenario where there are no equivalence decisions.

The MFSA also provided an update to entities licensed in the UK providing services in Malta in its circular. Upon the expiry of the transition period, UK licensed entities will no longer be able to provide financial services in Malta through the freedom of services and/or establishment, and such entities are thus advised to obtain the necessary authorisation in Malta or in an EU Member State or establish themselves before the end of the transition period. Local customers should be provided with details on alternative arrangements and contact details. Such entities are encouraged to inform the MFSA of their planned arrangements at the earliest.

With regard to UK Investment Firms and Investment Funds, the communication on a temporary permission regime (‘TPR’) for investment firms and investment funds in the case of a no-deal Brexit issued by the MFSA is no longer applicable. Per the MFSA’s Circular issued on the 11th July 2019, the TPR remained valid until 31st March 2020, and UK Entities were permitted to continue with the fulfilment of existing contracts until such date, or alternatively terminate contracts, obtain the necessary authorisation by the 31st March 2020, or assign existing contracts to an authorised entity.

UK UCITS and UK AIFs will also no longer benefit from passporting rights as of 1st January 2021, however such funds may be marketed into Malta under the National Private Placement Regime (‘NPPR’) under the Investment Services Act (Alternative Investment Fund Manager) (Third Country) Regulations (Malta AIFM Third Country Regulations) and subject to the notification procedures established in the AIFMD. The MFSA has started accepting applications under the NPPR as of the 18th November 2020. Any queries may be forwarded to [email protected].

The MFSA has also communicated its expectations of UK/Gibraltar insurance undertakings and insurance intermediaries through a letter sent to such firms conducting business of insurance in Malta through freedom of services and freedom of establishment. The letter informed such undertakings and intermediaries that they may not conclude new insurance contracts or establish, renew, extend, increase or resume insurance cover under the existing insurance contracts in Malta without obtaining the necessary authorisation from the MFSA. Where insurance undertakings choose not to obtain authorisation from the MFSA or fail to do so prior to the end of the transition period, they will be allowed to carry out an orderly run-off, and such undertakings must formally inform the MFSA in a timely manner.

Maltese license holders are also reminded that in light of the termination of the passporting regime for EU licensed firms in the UK, should they seek to continue providing financial services in the UK, they must do so in accordance with the guidance provided by the relevant UK financial services regulator. License holders must apply to join the applicable UK TRP before the end of the transition period. License holders intending to use their passporting rights to the UK by submitting a new outbound passporting notification request to the MFSA must do so promptly and not later than 10th December 2020.

All license holders are also informed that once the transition period ends, the MFSA’s Financial Services Register will be updated and any reference to passporting activities of licensed entities in or out of the UK will be removed. Any questions may be forwarded to the following sectoral supervisors: